Severstal, one of the largest steel manufacturers in the world, has had a volatile few years in the market. First, there was a cancelled merger with rival Arcelor in 2006, then a spin-out of mining company Nordgold earlier this year, and a revamped corporate governance structure.

In late August, the Russian giant posted a $50m net loss for the first six months of the year, hit by a $143m foreign exchange loss. Financial News caught up with chief financial officer Alexey Kulichenko to discuss mergers and acquisitions and bond-buying.

Financial News: Are you happy with your latest set of results?

Alexey Kulichenko: Broadly, yes. Definitely, we see that this year is more challenging in pretty much all the drivers across all materials. But the company is in completely different shape than it was three years ago, in terms of strengths on the balance sheet, in terms of performance levels.

FN: Are you also happy with the choice to list and spin off Nordgold?

AK: We are happy with the spin-off. We spent a lot of time trying to figure out what would be the best way out, and the chosen mechanism was not the simplest one, but it was the best option. Severstal is now focused on steel, and we think that addresses a lot of investor concerns around the direction of the company.

FN: You have a history of either doing, or nearly doing, significant M&A deals. At the moment, deals have been few and far between. Are bankers knocking on your door?

AK: We used to be very open to all new opportunities in the market but our history has given us a few lessons, and some very expensive ones, so we have to be very careful, especially in cyclical industries like ours. Today, we don’t consider any cash-related M&A. The strength of our balance sheet is something that we consider a key metric that we want to stick to.

There is room for some potential consolidation in terms of non-cash deals. Nothing practical is on the table today.

FN: You say today is not the right time. Is this the same as what your banking advisers are saying?
AK: Generally yes. They appreciate what we have done and that we are doing the right things.

FN: The board of Severstal in June approved a bond-buying programme with a limit of 80bn roubles. Why did you decide to do this?

AK: We continue to be very strong in terms of our liquidity. Very likely we will continue to reduce the amount of absolute cash on our balance sheet, replacing it with some facilities that will allow us immediate access to funding if needed. And we want to be ready for any opportunities that could occur in the market.

So our push here is absolutely opportunistic.

FN: You also have a number of greenfield development sites. Have you listed strategic partnerships, initial public offerings or project financing as options to help limit Severstal’s cash contribution?

AK: We still have a year to complete the feasibility study but, for us, we already understand the main dilemma will be how we match the capital expenditure needed to start this project with our balance sheet and our need to keep the level of debt within a certain threshold. So we need to look at how we attract additional financing. We could do that in a variety of options, which are too early to say, but we are 100% owner of the project and, from a cash and risk perspective, maybe it would be right to share this project with a partner at a certain stage.